Letter to MiningNews - Universal's forgotten story
Thursday, 9 November 2006
I was surprised to read in a recent MiningNews.net article, comments made by a prominent analyst on the market price of Havilah Resources. The analyst indicated that Havilah Resources is one of the cheapest base metals explorers on the Australian Stock Exchange, particularly so when compared to stocks such as Compass Resources, which currently has a market capitalisation of $555 million.
I have seen the share price of a number of junior uranium, zinc and copper explorer/emerging developers escalate to stratospheric levels over the last few weeks and thought it is time for me to add my two bob's worth. I am currently a holder of a significant amount of Universal Resources stock and believe that from a comparative value standpoint, Universal Resources is significantly undervalued when considering the market's valuation of the likes of Havilah Resources and many other mining exploration/emerging developer companies.
I would like to make some comparisons to explain my point of view.
Havilah Resources' (Havilah) West Kalkaroo project has a current resource of 70 million tonnes at 0.46% copper and 0.47gpt of gold. This equates to 322,000t of copper and 1.06 million ounces of gold. At today's metal prices, this converts to a $A3.9 billion resource. Universal Resources' (URL) Roseby project has a current resource of 123Mt at 0.73% copper and 0.06gpt of gold. This equates to 905,000t of copper and 228,000oz of gold for a resource value of $8.8 billion. This is over double the value of the lower-grade Havilah resource.
In terms of the project development cycle, Havilah has yet to undertake a feasibility study whereas URL has completed a final feasibility study and is advancing its Roseby project finance negotiations. In other words, Havilah at this stage is purely an exploration company whereas URL is an emerging developer company and should attract a higher market rating.
Turning to another matter, estimated capital and operating costs for the Roseby project have increased in line with that for the global mining industry. However, it was interesting to note in a recent ASX release that the estimated operating costs for Matrix Metal's relatively small Mount Watson/Mount Cuthbert project are $US1.59 per lb. The Roseby Project's estimated operating costs have increased, but now stand at $1.14/lb, some 28% lower than the proposed Matrix operation.
At today's copper price, the Roseby project has an NPV of almost $A1 billion and there is significant potential to add value through further exploration. URL will also be exploring for zinc and uranium and given the very close proximity of Zinifex's world-class Dugald River deposit (which I should add is surrounded by URL tenements) and the former Mary Kathleen uranium mine, one could assume that URL holds some highly prospective ground in Queensland's Carpentaria-Mount Isa Minerals Province. URL has yet to scratch the surface in the majority of its tenement holdings in Queensland's northwest and with a $16 million exploration war chest, it could be expected that URL will uncover additional resources, whether it be copper, zinc or uranium.
Havilah's current market capitalisation is $73 million whereas Matrix Metals is currently valued by the market at $56 million. URL's current market capitalisation is a paltry $44 million. This is anomalous and particularly so when you consider the value the market has placed on Copperco. Copperco has recently upgraded its copper resource for its Lady Annie and Mount Kelly deposits to 21.5Mt at 0.9% copper for 194,400t of contained copper.
Despite URL being focused on finalising its feasibility study for its Roseby project over the last 12 months, its resource base is still well over four times the size of Copperco's copper inventory. I will admit that Copperco is more advanced with its proposed copper operation in northwest Queensland, but find it difficult to comprehend how Copperco's market valuation is currently around $180 million when you compare the size of its copper resource with that held by URL.
On face value, one could assume that unless the market revalues URL in the short-to-medium term, it might become a takeover target as it has one of the largest junior explorer/developer copper resource inventories in the country, has significant cash on hand and holds some very prospective ground in a very prospective region. Time will tell.
Regards, Anthony O'Sullivan
URL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
